Few people will ever forget the day in 1989 when Alaska's pristine Prince William Sound drowned in 11 million gallons of crude oil delivered by the oil supertanker, Exxon Valdez, as it ran aground. The news captured it all-volunteers scrambling to nurse individual birds, seals and other wildlife; others trying desperately to clean the spewage from rocks and sea.
And while the news media didn't quite capture the full business implications of the tragedy, few will forget the ultimate cost to Exxon in criminal, civil and administrative penalties: $1.1 billion.
Behind those penalties was a mild-mannered, rather unassuming man who might fit the stereotype of back-office accountant better than that of formidable lead prosecutor for the U.S. Department of Justice. Yet there he stood, the attorney who led the charge to exact the most expensive penalty ever from corporate America in a case that should stop most companies in their tracks-especially if they lack effective corporate compliance programs.
That man is Charles De Monaco, a Pittsburgh native who grew up in a blue-collar home in a blue-collar neighborhood to become a prosecutor feared by those in corporate America who disregard government regulations.
He served early on as an assistant district attorney in Allegheny County before moving on to assistant U.S. attorney for the Western District of Pennsylvania and, ultimately to assistant chief of the Environmental Crimes Section of the U.S. Department of Justice in Washington, D.C. He spent his last 15 years there.
But now De Monaco is back in Pittsburgh bringing his corporate compliance experience and insight to bear working for none other than corporate America itself. As counsel for Pittsburgh law firm Dickie, McCamey & Chilcote, he is preaching-albeit with a nice-guy approach-the virtues of compliance to those who might otherwise have had to face him in court. And lost.
This is what he's telling his clients:
What was the biggest significance for business owners today that came out of the Exxon Valdez case with regard to environmental compliance?
The biggest message that came out of the Exxon case is that it's extremely important for corporations to have an environmental compliance program and to have a code of conduct-procedures and guidelines-in place that would help employees to know what their standards are and what the policies are and for companies to know how to deal with a situation when it comes about.
...Exxon had a very good history as far as corporate America was concerned. Nonetheless, it had a problem when an oil tanker ran aground in the Prince William Sound and approximately 11 million gallons of oil spilled. Now, the sentencing guidelines weren't in effect as far as preparations were concerned when that went aground. So what Exxon was guilty of was a situation when there was a huge loss as the result of an oil spill and they were going to have criminal, civil and administrative liability for that conduct.
As far as Exxon was concerned, they responded very well to the spill. They voluntarily paid $2.3 billion before there was a settlement with the government. And the settlement with the government, a total of $1.1 billion both for civil and criminal disposition. And of course, Exxon, in addition, pled guilty, and Exxon Shipping pled guilty to certain violations of federal environmental laws.
As a result of that, the lesson to be learned is that accidents may happen, but a company has to do all that it can do within its power to make sure that those accidents don't happen and, if they do, they respond to them appropriately.
Exxon pled guilty to a violation known as the Migratory Bird Treaty Act, and Exxon Shipping Co. pled guilty to the Clean Water Act and the Migratory Bird Treaty Act. It was a total disposition on the criminal side of approximately $125 million as far as the net penalty was concerned. And of course on the civil side it was approximately $1 billion, or $900 million for a total of $1.1 billion.
How does the government look today at companies that do have standards and compliant measures in place and still have accidents?
The government policies make it very clear that the government takes into consideration in a very favorable way the company that has an effective compliance program. That mitigates a company's exposure to criminal and civil liability and, in certain respects, may even avoid criminal disposition. For example, in the environmental field, the government has a policy that went into effect in July of 1991. That policy makes it very clear that if a company has in place an effective compliance program and if it's diligently monitored and the company makes voluntary disclosures to the government, that the government will treat that company in a very lenient way.
Likewise, the inspector general for Health and Human Services has made it very clear that in the health-care field, there will be leniency for those companies that have in effect a compliance program.
But those companies that don't have a compliance program, then they're not going to receive leniency from the government, whether it be in the health-care field, or the environmental field, or any other field, for that matter. And when we take a look at the United States sentencing guidelines that became effective in November of 1991, the guidelines make it clear that if a company has in place an effective program to prevent violations of law, whatever penalty has been assessed against them will be minimized because of that program.
Have you seen that to be the case now?
Absolutely. This deals primarily not in the environmental field but in the other fields where a monetary fine is assessed based upon guideline computations. And when you take a look at guideline computations, there is this multiplier factor that goes into effect. If a company, for example, has a program to prevent violations of law then there is a reduction in the penalty. That is set forth in great detail in the sentencing guidelines.
So it's not really a subjective thing so much if it's well documented?
You're right. If it's well documented and the government is satisfied that the program is effective, then there is that type of leniency that the courts will be able to accompany. It's not a matter of seeing an actual case or example. It's really a matter of a black and white letter of the sentencing guidelines that makes it very clear.
Is it much more clear now than it was back in your heyday with the government?
Absolutely because, back then, even when Exxon ran aground, the sentencing guidelines were not in effect for corporations. When Ashland Oil [spill] occurred here in the Pittsburgh area in 1988, that's another example of when the sentencing guidelines weren't in effect at that time as far as corporations were concerned. That doesn't mean corporations didn't have corporate compliance programs. Many corporations, of course, did. But in 1991, that set the standard, that corporations had to have that in place and had to have it maintained. Otherwise, if there was a violation of law and there was a criminal sanction, it was going to hurt corporations that didn't have those kinds of compliance programs in place.
Are many of the laws in place now based on the precedence set by Ashland Oil, Exxon Oil and some of these others?
Not to discuss this in a real personal sense, but rather a more general sense, certainly the efforts that the government put into place after the effective date of the sentencing guidelines set the stage. For example, there was a case in Miami where a court ordered that a corporation have an effective compliance program in place and to have it diligently monitored. As a result, the company did it, and since that time, a number of other courts have imposed a very similar type of compliance program.
It was a great learning experience for me to be involved in those types of prosecutions because one would lead to another then to another, then to anothe r, and as a result, it's now standard.
Looking at compliance in general as far as standards that have been set across the board, how fair are the government regulations right now, particularly for smaller companies?
For the smaller companies, those companies have to comply with the law, just like the larger companies. But the government, from my perspective, is extremely fair. For example, with the Environmental Protection Agency, they have a program in place that, if a company is small and they have a program in place, all that company has to do is really coordinate with the region of EPA, and the EPA will help the small company understand the regulations and get into compliance.
So long as there's that dialogue that occurs between the regulated agency and the corporation, normally that corporation is going to be fine. In addition, the EPA has set up some pilot programs where a larger company will be the mentor for the smaller company to help that smaller company stay in compliance with the law.
So has the government, in fact, moved into an era of being helpful first, then, hopefully, there won't even be compliance issues down the line?
From my perspective, a corporation that in good faith tries to comply with the law and seeks the assistance of the regulator community such as the Environmental Protection Agency or the office of the Inspector General if it's a health-care matter will significantly benefit itself and avoid legal exposure. And so long as the government knows that that company is making a good-faith effort to comply, the chances of there being sanctions against that company are slight.
However, if a company disregards the regulations and doesn't put in place an effective compliance program, then, of course, if something goes wrong, that company can be hit very hard with fines and penalties.
Does the government come down even harder today now that there are some of these advocacy efforts on the part of the regulators?
I think so. The reason for that is because if a corporation doesn't take advantage of the remedies that are there and the services that are there, and they don't try to make a good-faith effort to comply, then they're going to be below the industry standards because that's not the industry standard in this day and age. As a result of that, you're right, the corporation may get hit a lot harder by the government for not having those programs in effect and not taking advantage of the services that are available.
How costly is compliance today?
Compliance really is just a cost of doing business. Compliance, when looked at from solely a legal exposure, may be viewed as costly. But when looked at as helping a company stay within the industry standards and become more efficient because of better morale of employees, then it's a reasonable cost of doing business, where that investment cost should come back to the company in multiples.
What would you say to companies that don't want the government anywhere near them, even if they're not trying to hide anything-where the mentality is that they don't want to open their doors to the government?
By doing an environmental compliance program or other compliance program in general, it is not getting the government involved in your business. It's really your business staying involved in your own businesses.